August 10, 2017

A Bundled Offer Does Not Circumvent A Right Of First Refusal; B&R Oil Co., Inc. v. Stoler

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Rights of first refusal are not uncommon in real property transactions. This case answers a question of first impression about what a right of first refusal truly means.

The Stolers leased properties from B&R Oil so that they could operate gas stations. These lease agreements contained a right of first refusal, which gave the Stolers the right to purchase the leased premises if a bona fide offer to purchase was made to B&R Oil.

In 2014, B&R Oil signed a letter of intent to sell substantially all of its assets (including the property leased to the Stolers) to Empire for approximately $80,000,000. B&R Oil notified the Stolers of this offer, and said that they would need to meet Empire’s bundled offer within 15 days. The Stolers stated their intent to exercise their right, but insisted that they only needed to match the offer for each individual property, not Empire’s entire offer. B&R Oil disagreed, and a lawsuit ensued. The parties filed cross-motions for summary judgment. The court denied summary judgment for B&R Oil and Empire and withheld ruling on the Stolers’ proper remedy (B&R Oil has completed the sale to Empire by this point). The appeal ensued.

On appeal, B&R Oil made two arguments: (1) Empire’s offer did not trigger the Stolers’ right of first refusal because Empire’s offer was not an offer for only the leased premises, and (2) the offer was an offer for the leased premises, B&R Oil complied with the ROFR when it gave the Stolers the opportunity to match the $80,000,000 offer. The Court disagreed with each of these arguments.

First, the Court roundly rejected the argument that Empire’s bundled offer was not an offer for the leased premises. “Here, the $80,000,000 offer sought, albeit among other things, to purchase the leased premises. … Thus, we conclude that the $80,000,000 offer triggered the ROFR and the Stolers’ option to purchase the leased premises.”

The Court then held that B&R Oil’s attempt to argue that the Stolers would need to match Empire’s offer for all of B&R Oil’s assets was an attempt to nullify the Stolers’ right of first refusal.

“Leased premises” can only mean one thing—it is the property leased by the Stolers. … There is nothing in the text of the ROFR that states, expressly or implicitly, that the ROFR applies to any other property.

And there is nothing in the text of the ROFR that suggests or would support an inference that the ROFR either grants a preemptive right to the Stolers—or requires the Stolers—to purchase any property other than “the leased premises” should they exercise their right of first refusal. The leased premises was the only property within the contemplation of the parties when the leases were executed.

Moreover, the Court noted that B&R Oil’s interpretation invited lessees to make “competing and irreconcilable options to purchase the same properties, including options to purchase each other’s leased premises,” a result which could not have been intended.

Finally, the Court cited to the Hamlin doctrine, which prevents a party from acts of contractual sabotage or other acts in bad faith by a party that causes the failure of a condition. It characterized B&R Oils’s conduct as a form of contractual sabatoge, and found that B&R Oil had “an affirmative duty … to exclude the leased properties from the third-party offer or to allocate and attribute a portion of the purchase price to the leased premises so that each of the right-holders could exercise their rights under the ROFR.”

In sum, the designated evidence demonstrates that there is no genuine issue of material fact with respect to whether B&R Oil breached the lease agreements. Although B&R Oil presented the Stolers with a third-party offer to purchase the leased premises, B&R Oil did not present the Stolers with an exclusive option to purchase the leased premises, and only the leased premises identified in each lease agreement, as required by the ROFR. Thus, we affirm the trial court’s entry of summary judgment for the Stolers

Judge Bailey dissented. He agreed that Empire’s offer triggered the right of first refusal, but concluded that B&R Oil met its obligations under the leases.

Here, the plain language of the contract dictates precisely what must happen when B&R Oil receives a triggering offer: “Lessor shall give Lessees Fifteen (15) days for Lessees to make to lessor a firm commitment to match said offer and to seek financing for the purchase of the property at said purchase price before Lessor sells its interest in the leased premises to a third party.” B&R Oil notified the lessees that it received a package offer, and the lessees declined to make a package purchase. Thus, applying the negotiated contract language—and only those agreed-to terms—I would conclude that B&R Oil did not breach the ROFR, and is therefore entitled to summary judgment.

He disagreed with the majority’s characterization of B&R Oil’s conduct as contractual sabotage because “the defined right is the opportunity to match a third-party offer. Had the parties wished to restrict B&R Oil from passing through package offers, they could have readily done so.”

Lessons:

  1. A purchase offer bundling one property with many others triggers a right of first refusal on the one property.
  2. A landowner has an obligation to ensure that offers to purchase are structured in such a way so that entities with rights of first refusal have a realistic opportunity to exercise those rights.